Daily Newsletter, Wednesday, 09/24/2008

Table of Contents

Market Wrap

The Sleeper Hold!

by Jeff Bailey

Stocks witnessed a mixed-to-lower trade on Wednesday while Treasuries found a
strong bid as the tag-team effort of Bernanke/Paulson continued their efforts to
convince Republican and Democratic Senators alike, that the U.S. economy could
slip and fall into a recession if a still being molded $700 billion tax-payer
funded rescue plan isn't approved soon.

Market Internals -

Despite yesterday evening's news that Berkshire Hathaway's (NYSE:BRK.A)
$133,300.00 3.49% Warren Buffett said it was investing at least $5 billion in
Goldman Sachs (NYSE:GS) $133.00 6.35% the major averages traded modestly higher
on negative breadth at both major exchanges.

Mr. Buffett said the primary reason for the decision to invest in Goldman was
based on his belief that a rescue plan would be delivered.

Like the "sleeper hold," equity traders appeared little interested in jumping
into the ring today.

Volume levels have dropped off significantly at the big board, which I would
attribute in part to the delisting of Lehman Brothers at last Wednesday's close,
but I would also think the SEC's no short sale rule of many NYSE-listed stocks,
which grows further in number and even outside the "financial" sector.

Today's 4.8 billion shares at the big board were well off its 5-day average of
6.97 billion and 10-day average of 7.53 billion shares.

NASDAQ's volume also continued to abate at just 1.82 billion shares, down from a
5-day average of 2.77 billion and 10-day average of 2.74 billion.

The number of new highs at both the NYSE and NASDAQ are well off some shocking
readings from Friday. On Friday, the NYSE reported 208 issues having traded a
new 52-week high, while NASDAQ reported a slightly better 230.

The most heavily weighted stock in the price-weighted Dow Industrials ($DJI.X)
10,825.17 -0.26% and 1.51% weighting in the S&P 500 Index had "big blue" IBM (NYSE:IBM)
$117.00 1.42% gaining $1.64, but still finding some sellers at its 200-day SMA
of $117.71.

Late this afternoon, S&P 500 component CVS/Caremark (NYSE:CVS) $33.10 -1.66% is
among a list of nine (9) new names added.

At the time of this writing, I was unable to find a NASDAQ list of SEC
prohibition names.

Investors appeared unfazed by a larger-than-expected drop in sales of existing
homes in August. The National Association of Realtors said sales fell by 2.2% to
a 4.91 million annual rate. Economists were looking for sales to decline a more
modest 1.6% to 4.93 million annual rate. The number of unsold homes on the
market dropped by 7% from a record set in July, marking the steepest drop in
inventory since December 2006.

Today's Global Economic Calendar -

Additional data on the housing sector had the Mortgage Bankers Association
saying its seasonally adjusted purchases index fell by 10.4% to 340.80, while
the refinance index fell 11.2% to 2043.4 after the prior weeks 88.1% surge. I
should note here again that these are APPLICATIONS for mortgage purchases and
refinancing, and does not equate to actual approvals as lending standards for
prime (high credit score and/or verifiable income), or subprime (lower credit
score and/or stated income)
are getting closer scrutiny, despite benchmarks from
the Community Reinvestment Act (CRA). The MBA said the average contract interest
rate for a 30-year fixed-rate mortgage increased to 6.08% from 5.82% the week
ended 09/12/08, while a one-year ARM increased to 7.01% from 6.95% during the
same period.

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For those of you that found last Thursday's Market Wrap "opinion" from Robert
Ogilvie as interesting/informative as I did, the CRA and all of its amendments
also gives some background as to the S&L crisis, its taxpayer rescue plan, and
resulting revenue surpluses during the Clinton administration (1992-2000).
Regulation and oversight of such programs is also a key sticking point for some
lawmakers that are now burdened with a decision in regards to the rescue plan.

The Dow Jones Home Construction Index (DJUSHB) 324.80 5.22% was today's
sector/index winner in your U.S. Market Watch, the only equity-based index to
post a gain greater than 1.0%.

US Market Watch - 09/24/08 Close

As investors, economists and traders around the world listened to today's
continued testimony from Dr. Ben Bernanke, the weekly EIA inventory figures
(excluding natural gas) were released at 10:35 AM EDT.

For the week ended 09/30/2005, roughly four (4) weeks after Hurricane Katrina
hit the Gulf of Mexico shores, the Percent Utilization of Operable Capacity saw
a similar "sharp decline" to 69.79% from 86.73%, then refineries began coming
back online.

Platforms began producing as demand returned.

I would also note that the # Days Supply of Crude Oil for the week ended
09/30/05 rose to 21.7 and eventually hit an "inflection" high of 24.7 by
10/21/05.

Since the termination of the Nymex October Crude Oil futures contract (cl08v) on
Monday (09/22/08), which found an impressive little short-squeeze to $120.92
($130 intra-day), I'm now tracking November contracts for crude oil, unleaded,
heating oil and natural gas.

Nymex November Crude Oil (cl08x) settled down $0.88, or -0.83% at $105.73 (this
contract settled $109.37 on 09/22/08 and traded intra-day high of $110.45 and
its 200-day SMA).

Nymex November Nat. Gas (ng08x) settled down $0.236, or -2.90% at $7.908 and was
a percentage loser in the energy complex.

I don't have an current market estimate for tomorrow's EIA release of
underground storage. My estimate is for a build of 75 Bcf to 3,047 Bcf.

Well, that's some of today's events.

Per last week's Market Wrap, I want to update you on the 13-week Treasury Yield
($IRX.X), where trade still gives me the impression that traders and investors
are very nervous and defensive.

The recent SEC decisions for more "socialistic" policy regarding NO SHORT many
financials and now some other stocks, and a pending tax-payer funded rescue
plan, provides the backdrop for a market that can, and will moved on a moments
notice.

If you've ever watch a professional wrestling event in person, or on the TV,
you're pretty certain what you're seeing isn't real.

The wrestler getting the "sleeper" hold put on him doesn't lose the match until
the referee lifts his arm, and the arm drops to his side as if the wrestler is
"out" with all blood supply to the brain seemingly cut off.

Oh but the surprise, and roar of the crows, when he maintains a super-human
effort, to somehow keep his/her senses, sometimes able to get to the ropes where
the hold must be broken.

13-week Treasury Yield ($IRX.X) - Daily Intervals

Earlier in this evening's wrap I quickly reviewed some of the "shocking" new
high figures over the past few days, and their abatement.

On first word of the "rescue plan" and other government interventions in the
equity markets, you can see some formidable selling came into this very
short-term Treasury note, with its yield jumping as high as 1.05% Friday, before
closing at 0.92%.

To be truthful, today's equity action didn't show as much downside as I thought
we might see by day's end, when this short-term note's YIELD fell below 0.50%.

Again, I'm using the $IRX.X more as a pulse of just how LOW a yield return (even
short-term) that market participants are will to buy, in order to AVOID risk in
other places of the market, namely equities.

See back in late March, when this bond's YIELD was able to see a close above the
1.00% level?

That would be a first indicator for this technical analyst to begin to think
that market participants might be somewhat more "comfortable" with things.

Again, the tax-payer rescue plan is being molded. We have NO IDEA what it looks
like, or ... if it will ever exist.

President Bush will address the nation this evening at 09:00 PM EDT, and may
give some greater detail.

To instill in traders and investors how quickly things can change, let's also
revisit the various major market bullish % from Dorsey/Wright. I do not recall
EVERY having witnessed this type of volatility from what tend to be more "slow
and methodical" moving indicators of internal bullishness, or bearishness.

Wednesday, 09/17/08 was our last visit.

Some of the cash that came out of the 13-week Treasury ($IRX.X) generated a
notable number of "buy signals" on a lot of stocks' point and figure charts (a
column of X exceeded a prior column of X).

For instance, the BROADEST OF BROAD bullish % and the BPALL was at 26.47% last
Wednesday evening and by the 09/22/08 close (Monday) had 40.25% of roughly 5,000
PnF charts then seeing a "buy signal."

From roughly 1,324 stock to 2,012 stocks and this very broad indicator reversed
back up into "bull confirmed" status.

The very broad BPOTC, which is Dorsey's bullish % for the NASDAQ Composite (COMPX)
2,155.68 0.10%, remains in a column of "O" and would need a closing session
measure of 36.00% or higher to see a 3-box reversal back higher.

But look at the various bullish % (BROADEST to left, the NARROWER/NARROWEST to
right).

Remember, there are only 30-stocks in the Dow Industrials and this very narrow
bullish % is not used that much by institutional money managers.

SPX and RUT New High and New Lows

I was "shocked" to say the least when I learned that the RUT.X had posted 198
stocks having hit a new 52-week high on Friday.

This is where I think a BULL would have to be focusing on an index, or tracker
trade like the iShares Russell 2000 (IWM).

But NOTICE the quick, and notable "lack" of new highs since.

Still, if the SEC is going to take away a portion of market participants that
SHORT stocks, and the RUT.X/IWM most heavily weighted sector is FINANCIALS, then
the supply/demand characteristic FAVOR demand.

The "explosion" in the number of new highs to 198 is the most in over a year!
That would have to mean that any "old" supply of stock for at least 198 small
cap names is becoming limited. Yes, there may be some "old bulls" that are
selling, some stocks are still able to be shorted, but if we were to see a
BULLISH response to any pending "rescue plan," then this is where I'd be placing
any new BULLISH capital.

I would STRONGLY suggest OPTIONS.

If we're going back to the "stone age" with no rescue plan, then the MOST you
can lose is what you place in a CALL OPTION.

By now, bears, or LONG PUT holders now what to expect.

We should all be managing our accounts to EXPECT the UNEXPECTED.

New Plays

Most Recent Plays

by James Brown

Play Editor's Note: There is still a lot of uncertainty
and fear in the market place. I'm not adding any new positions today. My bias is
bearish but stocks could pop if we get any sort of "good" news on the bailout
plan. What constitutes "good" news at this point is anyone's guess. The best
trade may be to sit out and wait.

New Calls

None today.

New Puts

None today.

New Strangles

None today.

Play Updates

Updates On Latest Picks

by James Brown

Call Updates

Allergan - AGN - close: 55.97 change: -1.39 stop: 54.95

AGN fell sharply this morning under performing its peers. We couldn't see any
news to account for the relative weakness. The selling paused when AGN hit its
rising 50-dma near $55.30. We have been warning readers to expect a dip near
$56.00. The stock overshot to the downside. Short-term technicals have turned
bearish. Wait for a bounce before considering new bullish positions. Our target
is the $64.00-65.00 range. The Point & Figure chart is bullish with a $75
target.

Crude oil inched lower on Wednesday and oil stocks followed. TDW under performed
its peers and the market with a 3.3% plunge past the $60.00 level and its 10-dma
and exponential 200-dma. This is short-term bearish move but we've been warning
readers to expect a dip near $58.00. The low today was $58.12. A bounce from
here can be used as a new bullish entry point but I am reiterating early
comments about the broader market bearishness and how this isn't a great
environment to open new
bullish positions. We have two targets. Our first target
is $64.90. Our second target is $68.00.

Look out below! WM crashed to a 29% loss on Wednesday. The move was fueled by
news that S&P had downgraded the company's creditworthiness even further. What
really fueled the sell-off was comments that WM may not be sold as one piece but
chunks of the company might get bought. It's possible the analyst was suggesting
that the U.S. government may step in and slice up WM to be sold to its
competitors. Such a move would kill any "premium" paid and our bullish bet would
be
dead money. Of course at this point our bullish bet is looking pretty grim
already. We're not suggesting new bullish call positions. We're not listing a
stop loss because the stock is so volatile and we knew this would be a
high-risk, speculative bet. We listed the October or January calls as suggested
strikes to buy.

The trading in the XOP continues to grow more and more bearish as it hovers
around the $49-50 zone. The stock is building a short-term trend of lower highs
under its 50-dma. If XOP doesn't bounce from its 10-dma near $48.65 we will
probably consider an early exit. We are not suggesting new bullish positions at
this time. The XOP hit our first target on Sept. 19th. We're currently aiming
for the $53.50 mark.

Put Updates

Volatility Index - VIX - cls: 35.19 chg: -0.53 stop: n/a

The market spent the day hovering sideways and the VIX followed suit. We remain
bearish but readers have a couple of choices on potential entry points. You
could wait for another failed rally or blow-off top type of move around the 40
region. Or you could wait for a breakdown under the 10-dma. We're setting our
first target at 25.50. Our second target is 21.00.

Picked on September 16 at = 30.30
Change since picked: 4.89
Earnings Date 00/00/00
Average Daily Volume = --- million

Strangle Updates

None

Dropped Calls

None

Dropped Puts

None

Dropped Strangles

None

Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.

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